French government to reinstate overtime tax

François Hollande to abolish controversial overtime law in bid to strengthen 35-hour maximum week and wipe €3bn off deficit

France's president François Hollande. His plan to reintroduce tax on overtime aims to reduce the public deficit and strengthen the 35-hour week. Small firms are allowed to keep the tax break. Photograph: Pierre Verdy/AFP/Getty Images

France's Socialist government is to bury the "work-more-to-earn more" philosophy of former president Nicolas Sarkozy by reinstating taxes on overtime.

The measure is also intended to strengthen the French left's totemic 35-hour maximum working week and wipe at least €3bn off the country's public deficit.

Abolishing the controversial overtime working law was a major pledge in François Hollande's successful presidential campaign. However, companies with less than 20 staff will be able to keep the tax break on extra working hours, as part of Hollande's promise to boost small firms.

The notion of a hard-working "France that gets up early" became symbolic of the Sarkozy era, a slogan designed to incite greater industriousness from the working population.

Removing taxes and charges on overtime was one of the first measures introduced by Sarkozy's right-of-centre government in 2007 in the hope it would encourage employment and make the 35-hour maximum working week regulation – introduced by a Socialist government in 2000 – impotent.

The French right has long railed against the 35-hour week; last year, Jean-François Copé, the head of Sarkozy's UMP party, said scrapping it was "inescapable".

However, critics of Sarkozy's tax break on overtime claimed it encouraged companies to offer overtime instead of taking on more staff. Firms and workers were also suspected of attributing normal working hours to overtime to avoid paying taxes and social security contributions on them.

According to the recent figures it cost France dearly: an estimated €4.5bn in 2010.

Defenders of the tax break claim it gave more than 9 million workers around €42 extra a month in their pay packets, but a cross-party parliamentary report suggested it was of no particular benefit to low-income families and that the fiscal advantages increased for higher earners.

"The efficiency of the part of the measure inciting people to work more has not been shown," it declared.

Another study by the Institute of Public Politics suggested it had resulted in "no significant impact on the number of hours worked".

While experts disagree over whether reintroducing taxes on overtime will reduce unemployment, currently at 10.1%, the former UMP prime minister François Fillon described the Hollande government's decision to do so as "double stupidity".

"It is very, very bad news," Fillon said. "Firstly it's a mistake for the French economy which needs to be flexible. It's making an economy that is already the most rigid of all European economies even more rigid, the opposite of what we should be doing in a time of crisis.

"Secondly, it's 9 million workers whose spending power will be reduced."

Bernard Thibault, head of the powerful CGT union, welcomed the abolition though he said he was not convinced it would create more jobs.

"What I am sure is that having recourse to a state-financed mechanism to incite overtime … is not neutral from an employment point of view," he said.